Introduction
The United Arab Emirates and the Republic of Indonesia signed a Comprehensive Economic Partnership Agreement on July 1, 2022, marking a significant milestone in the economic relationship between the two nations. The agreement officially entered into force on September 1, 2023, following the completion of all necessary legal requirements by both countries.
This landmark trade agreement represents the UAE’s third major economic partnership of 2022 alongside the UAE- Turkey CEPA, following similar arrangements with India and Israel earlier in the year. The signing ceremony took place in Abu Dhabi and was attended by high-level officials from both governments, underscoring the strategic importance both nations place on strengthening their economic ties.
The UAE-Indonesia CEPA establishes a framework for creating a free trade area between the two countries, built upon their existing rights and obligations under the World Trade Organization. The agreement recognizes the long-standing friendship and strong economic ties between the UAE and Indonesia while seeking to establish closer and more lasting commercial relations.
Aims and Objectives of the CEPA
The primary objective of the UAE-Indonesia CEPA is to increase bilateral trade from approximately 3 billion dollars recorded in 2021 to 10 billion dollars annually within five years of implementation. This ambitious target reflects the substantial economic potential both countries see in deepening their commercial relationship.
According to the UAE Ministry of Economy, the agreement aims to achieve several important goals. These include promoting technological innovation and facilitating the transfer and dissemination of technology for mutual benefit. The CEPA seeks to establish a clear, transparent, and predictable legal framework for business planning that supports trade and investment growth.
The agreement recognizes the importance of supporting micro, small, and medium-sized enterprises by enhancing their ability to participate in and benefit from the new trade opportunities. Both countries are committed to developing economic and trade relations by expanding commerce in goods and services for their common interest and mutual benefit.
Dr. Thani bin Ahmed Al Zeyoudi, UAE Minister of State for Foreign Trade, emphasized that the CEPA will play a crucial role in helping achieve the UAE’s goal to increase the size of its economy to AED 3 trillion by 2030. The agreement is designed to enable SMEs to expand globally, providing them access to new clients, networks, and cooperation opportunities.
Key Features of the Agreement
Trade in Goods
The CEPA covers more than 90 percent of tariff lines and 94 percent of the value of trade between the two countries. The agreement establishes three categories of preferential tariff treatment for goods traded between the UAE and Indonesia.
The first category involves immediate tariff elimination, where customs duties on certain originating goods are eliminated entirely from the date the agreement entered into force. The second category follows a phased approach, with customs duties on specified products being eliminated gradually over five years. For some Indonesian products, this gradual elimination extends over seven to ten years. The third category provides for tariff reductions, where customs duties are reduced compared to existing rates but not completely eliminated.
UAE exports that now benefit from duty-free treatment include petrochemicals, ceramic products, and steel products. This tariff elimination creates significant cost advantages for UAE businesses exporting these products to the Indonesian market.
Rules of Origin
To qualify for preferential tariff treatment under the CEPA, goods must meet specific origin criteria outlined in Chapter 3 of the agreement. A product qualifies as originating if it is wholly obtained or produced entirely in the territory of either party, or if it has undergone sufficient transformation to be considered substantially changed.
The products are regarded as substantially transformed if they meet one of three conditions. The value addition of the final good must be at least 35 percent of the ex-works value, or at least 40 percent of the FOB value. Alternatively, the manufacturing process must result in a change in tariff classification, meaning the tariff code of non-originating raw materials differs from that of the final manufactured product.
Products manufactured in free zones within either country are considered originating and eligible for preferential treatment. Compliance with rules of origin must be substantiated by proof of origin, which can be provided through a paper certificate, electronic certificate, or declaration from an approved exporter.
Trade in Services
The CEPA provides enhanced market access for service providers from both countries across multiple sectors. Indonesia has offered the UAE market access in telecommunications, construction, education, finance, insurance, healthcare, tourism, travel, distribution, and transport sectors.
The UAE gains better access to Indonesia’s services market in healthcare, distribution, education, transportation, construction, telecommunications, tourism, finance, and insurance sectors. The deal has the potential to increase the total value of trade in services between the UAE and Indonesia to 630 million dollars by 2030.
The agreement allows for the temporary presence of business visitors and intra-corporate transferees from both countries to supply services in each other’s territory. This provision facilitates the movement of skilled professionals and managers between the UAE and Indonesia.
Customs and Trade Facilitation
The CEPA introduces measures aligned with the WTO Trade Facilitation Agreement and World Customs Organization standards. These provisions enable efficient customs procedures and cross-border trade facilitation, including the issuance of advance rulings prior to import and facilitation of cross-border clearance for economic operators.
The agreement establishes cooperation through mutual administrative assistance on customs matters and mutual recognition of Authorized Economic Operator schemes. This ensures that trusted traders face fewer controls relating to safety and security when moving goods across borders.
Government Procurement
A notable feature of the CEPA is the provision for UAE businesses to access Indonesian government procurement opportunities. UAE companies receive support in the form of a 10 percent price preference in Indonesian government procurement tenders, giving them a competitive advantage when bidding for government contracts.
The agreement commits both parties to transparency and impartiality in government procurement processes. While the current provisions establish basic frameworks, both countries agreed to negotiate a more comprehensive chapter on government procurement within two years of the agreement’s entry into force.
Digital Trade and Islamic Economy
The CEPA dedicates specific chapters to digital trade and Islamic economy cooperation, reflecting areas of mutual interest. The digital trade provisions aim to promote the use of digital platforms by businesses, particularly small and medium enterprises, and establish frameworks for electronic commerce.
The Islamic economy chapter focuses on promoting cooperation in halal goods and services, Islamic finance, and related sectors. Both countries agreed to negotiate and finalize an annex on mutual recognition of halal certification within 12 months of the agreement’s entry into force.
Impact and Benefits
Economic Growth and Trade Expansion
The UAE-Indonesia CEPA creates substantial opportunities for economic growth in both countries. According to UAE Ministry of Economy officials, the agreement will enhance access to markets, drive foreign direct investment inflows, and generate new opportunities across vital sectors including energy, advanced technology, healthcare, environmental conservation, and e-commerce.
Abdullah bin Touq Al Marri, UAE Minister of Economy, stated that the agreement will incubate the new generation of companies in both countries by providing them with expanded market access and reduced trade barriers.
Sector-Specific Opportunities
The CEPA creates opportunities across multiple sectors. In agriculture and food production, reduced tariffs and streamlined customs procedures benefit UAE exporters of agricultural products and food items. The agreement addresses sanitary and phytosanitary measures to ensure that standards do not create unnecessary barriers while maintaining appropriate health and safety protections.
For the manufacturing sector, duty-free or reduced-duty access for petrochemicals, ceramics, and steel products creates significant competitive advantages for UAE manufacturers. The elimination of technical barriers to trade through mutual recognition of standards and conformity assessments reduces compliance costs for exporters.
The logistics and transportation sector benefits from streamlined customs procedures and facilitated cross-border movement of goods. Enhanced cooperation in maritime and air transport services creates new opportunities for logistics companies.
Support for Small and Medium Enterprises
The agreement includes specific provisions to facilitate SME participation in international trade. Chapter 13 establishes a framework for cooperation to strengthen collaboration between SME support infrastructures in both countries, including dedicated SME centres, incubators, and accelerators.
Both countries committed to promoting the use of digital trade platforms by SMEs and encouraging innovation and technology adoption. The agreement provides for information sharing on regulatory best practices that contribute to SME development and increased participation in covered government procurement opportunities.
Protection Against Trade Remedies
An important benefit for UAE exporters is the assurance that UAE products will not be subject to Indonesian anti-dumping investigations when such products are merely transshipped through the UAE. This provision provides certainty and stability for UAE businesses engaged in re-export activities.
Investment Facilitation
While maintaining the separate bilateral investment agreement between the UAE and Indonesia, the CEPA establishes a Committee on Investment to promote and enhance economic cooperation and investment projects. The committee works to identify opportunities for expanding investment, remove impediments to investment flows, and seek input from the private sector on investment-related matters.
Institutional Framework
The CEPA establishes a Joint Committee responsible for overseeing the agreement’s implementation and operation. The committee meets at ministerial level and is composed of representatives from both countries. Its functions include reviewing the agreement’s results, considering proposed amendments, resolving disputes, and supervising all committees established under the agreement.
The agreement creates several specialized committees, including committees on trade in goods, services, investment, government procurement, small and medium enterprises, economic cooperation, and Islamic economy cooperation. These committees meet regularly to address sector-specific issues and ensure effective implementation of relevant provisions.
The Joint Committee conducts a general review of the agreement every five years to consider updating and enhancing provisions through negotiations as appropriate. This review mechanism ensures the agreement remains responsive to evolving trade and economic conditions.
Conclusion
The UAE-Indonesia Comprehensive Economic Partnership Agreement represents a significant advancement in bilateral economic relations between the two nations. By eliminating or reducing tariffs on a wide range of goods, enhancing market access for services, streamlining customs procedures, and establishing frameworks for cooperation in emerging areas like digital trade and Islamic economy, the CEPA creates substantial opportunities for businesses in both countries.
For UAE businesses, the agreement opens access to one of the world’s largest economies with a population exceeding 270 million people. The preferential tariff treatment, support in government procurement, protection against trade remedies, and facilitation measures for SMEs create tangible benefits that enable UAE companies to compete more effectively in the Indonesian market.
The agreement’s comprehensive nature, covering not just trade in goods and services but also investment, digital commerce, intellectual property, and Islamic economy cooperation, positions it as a forward-looking framework that addresses contemporary trade challenges and opportunities. As implementation continues and both countries work toward the 10 billion dollars bilateral trade target, the CEPA stands as a testament to the strategic partnership between the UAE and Indonesia.
